In Investors’ Hedge-Fund Flows, Big Performers Are Still Winning

By Brendan Conway

Investors may have pulled nearly $11 billion from hedge funds during the month of October. But dig just a tiny bit deeper into the numbers and you’ll see investors are also being choosy. Namely, they’re buying high performers and selling everybody else.

The top-performing one-tenth of the hedge-fund business over the last 12 months can boast a median gain of 23.5%, well ahead of the S&P 500 (SPY). Such funds have enjoyed inflows of $4.8 billion. That’s according to the latest data on the subject from BarclayHedge and TrimTabs Investment Research. (It may not sound like much money, but keep in mind that a chunk of these hedge funds are small. A quarter of a billion dollars or half a billion dollars takes some effort to digest.)

Meanwhile, hedge funds that underperform are suffering. Investors have yanked more than $25 billion from the bottom 40% funds when ranked in terms of performance.

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As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.